National Federation of Independent Business v. Sebelius
National Federation of Independent Business v. Sebelius, 567 U.S. 519, was a landmark United States Supreme Court decision in which the Court upheld Congress' power to enact most provisions of the Patient Protection and Affordable Care Act, commonly called Obamacare, and the Health Care and Education Reconciliation Act, including a requirement for most Americans to have health insurance by 2014. The Acts represented a major set of changes to the American health care system that had been the subject of highly contentious debate, largely divided on political party lines.
The Supreme Court, in an opinion written by Chief Justice John Roberts, upheld by a vote of 5 to 4 the individual mandate to buy health insurance as a constitutional exercise of Congress's taxing power. A majority of the justices, including Chief Justice Roberts, agreed that the individual mandate was not a proper use of Congress's Commerce Clause or Necessary and Proper Clause powers, though they did not join in a single opinion. A majority of the justices also agreed that another challenged provision of the Act, a significant expansion of Medicaid, was not a valid exercise of Congress's spending power as it would coerce states to either accept the expansion or risk losing existing Medicaid funding.
Background
In March 2010, President Barack Obama signed the Patient Protection and Affordable Care Act into law. A number of parties sued, including the National Federation of Independent Business, claiming that the sweeping reform law was unconstitutional for various reasons. The Supreme Court granted certiorari to three cases, totaling 5½ hours of oral arguments: National Federation of Independent Business v. Sebelius on the issues of the constitutionality of the individual mandate and the severability of any unconstitutional provisions, Dept. of Health and Human Services v. Florida on the issue of whether review was barred by the Anti-Injunction Act, and Florida v. Dept. of Health and Human Services on the matter of the constitutionality of the Medicaid expansion.District Court proceedings
The state of Florida filed a lawsuit against the United States Department of Health and Human Services, challenging the constitutionality of the law. On January 31, 2011, Judge Roger Vinson ruled that the mandatory health insurance "individual mandate"—the provision of Internal Revenue Code section 5000A imposing a "shared responsibility penalty" on nearly all Americans who fail to purchase health insurance—was outside the power of Congress. Vinson also held that the mandate could not be severed from the rest of the Affordable Care Act and struck down the entire Act.Eleventh Circuit appeal
The Department of Health and Human Services appealed to the 11th Circuit Court of Appeals. A three-judge panel issued a 2–1 ruling affirming Judge Vinson's findings in part and reversing in part. The court affirmed the District Court's holding that the individual mandate was unconstitutional, but, contrary to the District Court's view, it held that the individual mandate could be severed, leaving the rest of the law intact. The government decided to not seek en banc review from the full Circuit and instead petitioned the United States Supreme Court to review the Eleventh Circuit's rulings.Related cases
Other federal courts heard cases related to the Affordable Care Act that were not directly reviewed by the Supreme Court, but caused a divide regarding the constitutionality of the law. Two federal judges appointed by President Bill Clinton upheld the individual mandate in 2010. Judge Jeffrey Sutton, a member of the Sixth Circuit Court of Appeals appointed by George W. Bush, was the first Republican-appointed judge to rule that the law is constitutional in June 2011, as part of a divided three-judge panel that upheld the constitutionality of the law.Briefings and oral arguments
On November 14, 2011, the Supreme Court granted certiorari to portions of three cross-appeals of the Eleventh Circuit's opinion: one by the states, one by the federal government ; and one by the National Federation of Independent Business.Oral arguments
The Court announced in December 2011 that it would hear approximately six hours of oral argumentation over a three-day period, from Monday, March 26, to Wednesday, March 28, 2012, covering the various aspects being questioned by the principal parties involved in this and other related cases concerning the ACA.The court first heard argument on whether the Anti-Injunction Act, which limits suits "for the purpose of restraining the assessment or collection of any tax", barred a decision before the ACA fully entered into force in 2014. Since neither the government, represented by Solicitor General Donald Verrilli, nor the states, represented that day by Gregory G. Katsas of the law firm Jones Day, were willing to defend that position the Court appointed Robert Long of the law firm Covington & Burling as amicus curiae to defend that position.
On the second day, the court heard arguments over whether the "individual mandate" component of the ACA fell under the constitutional powers of Congress. The states were represented during the hearings by former Bush administration Solicitor General Paul Clement while the government was represented by current Solicitor General Donald Verrilli.
On the morning of the third day, the Court considered the issue of severability—whether the Affordable Care Act could survive if the Court struck down the individual mandate. Paul Clement, Deputy Solicitor General Edwin Kneedler, and Court-appointed amicus curiae H. Bartow Farr, III of the law firm Farr & Taranto argued their various positions before the Court.
On the afternoon of the third day, the Court considered whether the Medicaid expansion the Affordable Care Act instituted was coercive. Both Paul Clement and Donald Verilli again argued before the Court. Chief Justice Roberts extended the time limit for both parties by 15 minutes during the arguments.
Solicitor General Verrilli's performance during the hearings was widely criticized by analysts.
Outcome
The case generated a complex division on the bench. With respect to the Anti-Injunction Act and individual mandate penalty, judgment was for the Secretary of Health and Human Services. With respect to the Medicaid expansion, judgment was for the challenging states.- All the justices were in rough agreement that the Anti-Injunction Act did not apply. Five justices joined an opinion as to this.
- One combination of five justices were of the opinion that the individual mandate was within the scope of neither Congress's Commerce Clause nor Necessary and Proper Clause powers. But as four of them did not concur in the judgment, their votes could not count toward a controlling opinion.
- A separate combination of five justices held the individual mandate was a valid exercise of Congress's taxing power. As these five justices concurred in judgment and agreed to the same parts of Chief Justice Roberts's opinion, this was the binding and controlling majority as to this aspect of the case.
- As the individual mandate was upheld, the issue of its severability from the rest of the Affordable Care Act was not reached.
- A final combination of seven justices concurred in judgment that the Medicaid expansion of the Affordable Care Act, in combination with existing statutes, amounted to an unconstitutionally coercive use of Congress's spending power. However, those seven justices were divided as to the appropriate legal remedy.
Opinion of the Court
Tax Anti-Injunction Act
The Anti-Injunction Act prohibits federal courts from enjoining agencies of the federal government from collecting a tax while a challenge to the tax is pending. Congress's motivation in passing the act was to prevent the starvation of the federal treasury while tax issues are being litigated before the courts. Instead, Congress requires a taxpayer who challenges any tax to first pay that tax, and only afterwards is the taxpayer allowed to bring suit and seek a refund. Challengers of the Affordable Care Act maintained that the individual mandate's enforcement mechanism was not a tax. The Court agreed. Because the Affordable Care Act labels the individual mandate's shared responsibility payment as a "penalty" instead of a "tax," it prevents the penalty from being treated as a tax under the Anti-Injunction Act.Congress's taxing power
Taking a functional view to the individual mandate penalty, the Court held that it was a tax for constitutional purposes. The Court noted that the label of the individual mandate shared responsibility payment as a penalty for the purposes of the Anti-Injunction Act did not control whether it was a tax for purposes of constitutional analysis. The Court asserted that the individual mandate penalty, in its practical operation, exhibited all the characteristics of a tax—the penalty "looks like a tax in many respects." That is, the individual mandate penalty had all of the following features of a tax:- payment went to the U.S. Treasury when taxpayers filed their tax returns;
- the amount of the penalty was determined by factors such as the individual's taxable income, number of dependents, and joint filing status;
- the penalty was found in the Internal Revenue Code, and enforced by the Internal Revenue Service in the same manner as taxes are collected; and
- the penalty produced some revenue for the government.
Finally, the individual mandate penalty operated within the constraints of even the narrowest reading of the taxing power, which disallows punitive taxation:
- the upper limit of the penalty was not so high as to become coercive since it was capped by statute to never be more than the cost of obtaining insurance;
- the penalty had no scienter element typical of punitive statutes; and
- while the penalty was collected by the IRS, any failure to pay the penalty would not result in criminal prosecution.
Plurality holding
As stated above, seven justices agreed in judgment for the states against the Department of Health and Human Services on the issue of the Medicaid expansion, but no opinion among them obtained the assent of five justices. At issue were amendments to the Social Security Act contained in Title X of the Affordable Care Act. These amendments, in expanding Medicaid coverage, made changes to the plan requirements states must meet in their Medicaid plans. The 1965 amendments to the Social Security Act that created Medicaid authorized the Secretary of Health and Human Services to withhold federal payments to state Medicaid plans that were not in compliance with statutory requirements.The seven justices were in agreement that the Secretary's existing ability to withhold all funds from non-compliant plans, coupled with the substantial coverage changes enacted by the Title X amendments, amounted to an unconstitutionally coercive use of Congress's spending power, given that Congress was not going to cover the full cost of the Medicaid expansion after 2016. Where the justices differed was in what they thought constituted the appropriate legal remedy. Four justices believed the Title X amendments should be struck down due to their impermissibly coercive nature. The remaining three justices instead opted to exercise the existing severability clause in the Social Security Act, as amended, holding that the ability given to the Secretary by statute to withhold federal payments could not be applied to the Title X amendments for those states refusing to participate in the Medicaid expansion. Since this latter opinion concurred in the judgment on the narrowest ground, the three-justice plurality became the controlling opinion under the rule set out by Marks v. United States.
Other opinions
Chief Justice Roberts' opinion
Chief Justice Roberts, writing only for himself, would have held that Congress's power to "regulate Commerce" does not extend to the regulation of economic inactivity.Regarding the argument that the mandate penalizes or taxes "inactivity", Roberts wrote:
Further, Roberts would have held that the individual mandate was unsupported by the Necessary and Proper Clause.
Chief Justice Roberts concluded:
Justice Ginsburg's concurrence/dissent
Justice Ginsburg concurred in the judgment in part and dissented in part. Joined by Justices Breyer, Sotomayor, and Kagan, she would have upheld the individual mandate under the Commerce Clause and Necessary and Proper Clause:Further, joined only by Sotomayor, she dissented on striking down the Medicaid expansion penalty, arguing that it was within Congress's power under the Spending Clause:
Ginsburg's dissent went on to highlight the implications of the majority's finding that the federal government's threat of taking away existing funding from states unwilling to implement Medicaid expansion left states with no "legitimate choice".
Joint dissent
Justices Scalia, Kennedy, Thomas, and Alito joined an unsigned dissent that argued the individual mandate was unconstitutional because it represented an attempt by Congress to regulate beyond its power under the Commerce Clause. Further, they argued that reclassifying the Individual Mandate as a tax rather than a penalty in order to sustain its constitutionality was not to interpret the statute but to rewrite it, which they deemed a troubling exercise of judicial power:The dissent also disputed Justice Ginsburg's claim that the court's opinion failed "to explain why the individual mandate threatens our constitutional order":
Finally, the joint dissent argued that since the ACA exceeded its constitutional powers in both compelling the purchase of health insurance and in denying non-consenting States Medicaid funding, the whole statute should have been deemed inoperative because the two parts were central to the statute's design and operation. The joint dissent mentioned that "the Constitution requires tax increases to originate in the House of Representatives" per the Origination Clause, though that issue was not addressed by the majority opinion.
Justice Thomas's dissent
In a one-paragraph dissent, Justice Thomas emphasized his long-held belief that the Supreme Court's precedents have broadened Congress's powers under the Commerce Clause in a manner "inconsistent with the original understanding of Congress's powers and with this Court's early Commerce Clause cases". Thomas wrote that he agreed with Roberts' interpretation of precedents allowing Congress to use the Commerce Clause to regulate "the channels of interstate commerce" and the "persons or things in interstate commerce" and disallowing the regulation of commercial inactivity. However, he disagreed with the court's third, "substantial effects" test as established by Wickard v. Filburn, articulated within United States v. Morrison, and strengthened by Gonzales v. Raich.Reaction and commentary
Media coverage
The Court convened on the morning of June 28, 2012, to announce its decisions on the ACA and two other cases; it announced its ruling on the ACA shortly after 10:00 am EDT. CNN and Fox News initially reported that the individual mandate was found unconstitutional, but corrected themselves within minutes. President Obama initially heard from CNN and Fox News that the mandate had been found unconstitutional, but then heard the correct information shortly thereafter.Speculation over Roberts' vote
Immediately following the decision, there was speculation that the joint dissent was the original internal majority opinion, and that Chief Justice Roberts' vote changed some time between March and the public issuance of the decision.On July 1, 2012, CBS News, citing unnamed sources within the Court, said that over the course of internal deliberations Roberts changed his position from striking down the mandate to upholding it. The article, written by journalist Jan Crawford, reported that during the Court's private conference immediately after the oral arguments, Roberts was inclined to strike down the mandate but, in disagreement with the other four conservative justices, was not certain this required striking down the law in its entirety. News articles in May 2012 that warned of potential "damage to the court—and to Roberts' reputation—if the court were to strike down the mandate" increased the external pressure on Roberts, who "is keenly aware of his leadership role on the court is sensitive to how the court is perceived by the public", and pays more attention to media coverage of the Court than some of his colleagues. It was around this time that Roberts decided to uphold the law. One of the conservative justices reportedly pressed Roberts to explain why he had changed his view on the mandate, but was "unsatisfied with the response".
On July 2, Adam Liptak of The New York Times reported that leak could have come from Justice Thomas, as Liptak pointed out that Crawford has long had a relationship with Thomas, granting rare interviews and Thomas singled her out as his favorite reporter, saying "There are wonderful people out here who do a good job—do a fantastic job—like Jan ."
Some observers have suggested Roberts' philosophy of judicial restraint
or the lack of Supreme Court precedents available "to say the individual mandate crossed a constitutional line" played a part in his decision.
The article reported that after Roberts "withstood a month-long, desperate campaign to bring him back to his original position", with Kennedy, who is typically the swing vote in 5–4 decisions, leading the effort, the conservatives essentially told him "You're on your own."
The conservative dissent was unsigned and did not, despite efforts by Roberts to convince them to do so, make any attempt to join the Court's opinion, an unusual situation in which the four justices "deliberately ignored Roberts' decision, the sources said, as if they were no longer even willing to engage with him in debate".
In 2019 it was reported that Roberts had originally voted to invalidate the individual mandate and uphold the Medicaid expansion requirement. He believed that the Constitution's commerce clause never was intended to cover inactivity, such as the refusal to buy insurance. But he was uneasy with the political division in the vote tally and also did not want to invalidate the entire law because he thought the individual mandate was only inseverable from "community rating" and "guarantee issue" provisions of the law. Due to this impasse he explored the argument that the individual mandate could be upheld as a tax and invalidating the Medicaid expansion. Breyer and Kagan had previously voted to uphold the Medicaid expansion, but decided to switch and join Roberts' opinion on that section.
Political reactions
President Obama praised the decision in a series of remarks, while discussing the benefits of the legislation in a statement shortly after the decision. House speaker Nancy Pelosi said that Senator Edward Kennedy of Massachusetts, a longtime proponent of health care reform who died before the bill became law, could now "rest."The ruling quickly became a rallying cry for Republicans who criticized the Supreme Court's reasoning and vowed to repeal the ACA. Though they had already repeatedly attempted to do so starting in January 2011, they were unsuccessful in enacting a repeal. Conservatives quickly seized on the fact that Obama and the bill's proponents insisted repeatedly throughout the protracted political debate 2009 and 2010 that the mandate was not a tax, but the Supreme Court upheld it on the grounds that it was a tax. Republican presidential candidate Mitt Romney said he would repeal the bill, as did Speaker of the House John Boehner and Senate Minority Leader Mitch McConnell. Several state attorneys general who challenged the law stated that they were disappointed with the Supreme Court's ultimate decision but happy that in doing so, the Court limited the powers of Congress under the commerce clause. Several state Republican officials indicated their desire to utilize the option granted to them by the Supreme Court to not further expand Medicaid.
The American Medical Association, the National Physicians Alliance, the American Academy of Pediatrics, and the Association of American Medical Colleges said that the ruling was a victory.
The New York Times reported the ruling "may secure Obama's place in history".
Academic commentary
The New York Times reported that the court's ruling was the most significant federalism decision since the New Deal. It reported in this respect about the new limits the ruling placed on federal regulation of commerce and about the conditions the federal government may impose on money it gives the states. With respect to the Commerce Clause, the Court ruled that the federal government had no permission to force individuals not engaged in commercial activities to buy services they did not want. With respect to the Medicaid expansion under the Affordable Care Act, the Supreme Court held that the ACA's requirement that states rapidly extend coverage to new beneficiaries or lose existing federal payments was unduly coercive. The health-care law had to allow states to choose between participating in the expansion while receiving additional payments, or forgoing the expansion and retaining existing payments. Cuccinelli praised the limits the Court placed on federal regulation of commerce and on the conditions the federal government could impose on money it gives the states.Georgetown Law professor Randy Barnett stated that by invalidating the withholding of existing Medicaid funding as unconstitutionally coercive the Supreme Court found an enforceable limit on the Spending Power of the federal government. This limit on the Spending Power of the federal government is part of Neal K. Katyal's ruling analysis. Law professor Neal K. Katyal at Georgetown University, who served as acting solicitor general of the United States and argued the health care cases at the appellate level, argued that the Supreme Court ruling could change the relationship between the federal government and the states because of "the existence of an extraconstitutional limit" on the federal government's power under the Spending Clause. Katyal said that until now it had been understood that when the federal government gave money to a state in exchange for the state's doing something, the federal government was free to do so as long as a reasonable relationship existed between the federal funds and the act the federal government wanted the state to perform. He then referred to the Court holding that the ACA's requirement that states rapidly extend Medicaid coverage to new beneficiaries or lose existing federal payments was unduly coercive by noting that the court found that "such a threat is coercive and that the states cannot be penalized for not expanding their Medicaid coverage after receiving funds. And it does so in the context of Medicaid, which Congress created and can alter, amend or abolish at any time.... This was the first significant loss for the federal government's spending power in decades. The fancy footwork that the court employed to view the act as coercive could come back in later cases to haunt the federal government. Many programs are built on the government's spending power, and the existence of an extraconstitutional limit on that power is a worrisome development." Katyal also mentioned that the federal government told the court that long-standing laws contain clauses that condition money on state performance of certain activities. "The decision leaves open the question of whether those acts, and many others, are now unconstitutional as well." However Reuters reported later that Katyal reversed his opinion and stated that he didn't see any litigation coming out of the Supreme Court holding in the near term.
In the same direction as Katyal argues Kevin Russell, who teaches Supreme Court litigation at Harvard and Stanford Law Schools and clerked for Judge William Norris of the Ninth Circuit and Justice Stephen Breyer. According to him several significant civil rights statutes, enacted under Congress's Spending Power, are at risk to be unconstitutional, because the Court held that Congress exceeded its Spending Clause authority by forcing states into an all-or-nothing choice by threatening to revoke all of their Medicaid funding if they did not participate in the Medicaid expansion. Russell remembers that a decade ago several states made challenges to a number of important civil rights statutes that condition receipt of federal funds on the state's agreement to abide by non-discrimination principles in the federally funded programs. "These statutes include Title IX, Title IV, and the Rehabilitation Act. States argued that by threatening to take away all of a program's funds if the State's didn't agree to abide by these statutes, Congress was engaging in unconstitutional coercion."
David B. Kopel, an adjunct professor of constitutional law at University of Denver, said that Supreme Court ruling is the court's most important ruling in defining the limits of Congress's power under the Spending Clause, because this clause must, like, conform to the principles of state sovereignty that are embodied in the United States Constitution, the Tenth Amendment and Eleventh Amendment. According to him this has a tremendous impact on state budgets: "Today, states do not need to provide Medicaid to able-bodied childless adults. Likewise, states today have discretion about whether to provide Medicaid to middle-class parents. Undoubtedly, some states will choose to participate in the ACA's massive expansion of medical welfare, but fiscally responsible states now have the choice not to."
University of Michigan law professor Samuel Bagenstos told The Atlantic that the Court's holding on the Medicaid Expansion could be a landmark decision in federalism jurisprudence, if the Medicaid issue were not in the same case as the individual mandate. He deemed it "a big deal" that the Supreme Court has for the first time struck down a condition on federal spending on the grounds that it coerced the states. In his opinion this means that a number of federal statutes that had not really been subject to effective legal challenge before can now be challenged by the states.